New Mexico halts some oil-field lease sales in standoff over royalty rates in Permian Basin

Mar 7, 2024, 6:04 PM

SANTA FE, N.M. (AP) — New Mexico’s State Land Office will withhold lease sales indefinitely on its most promising tracts for oil and natural gas development in the Permian Basin as it seeks approval for the state Legislature to increase top-tier royalty rates, Land Commissioner Stephanie Garcia Richard said Thursday.

Bills have repeatedly stalled in the Democratic-led Legislature, including this year, that would raise New Mexico’s top royalty rate for oil and gas development from 20% to 25%. Proponents of the change say neighboring Texas already charges up to 25% on state trust land amid intense competition to drill in the Permian Basin that overlaps southeastern New Mexico and parts of western Texas.

In New Mexico, royalty payments from oil and gas development are deposited in a multibillion-dollar investment trust that benefits public schools, universities and hospitals.

“I am a fiduciary on behalf of the school kids,” Garcia Richard said. “It’s my job to make them the most money possible, and leasing these tracts below market rate means that school kids are subsidizing the oil and gas activity.”

New Mexico Oil and Gas Association CEO Missi Currier said the disagreement between Legislature and State Land Office threatens to penalize petroleum producers and public beneficiaries as leases are sidelined.

She said in a statement that current combined royalties and other taxes in New Mexico are comparable to surrounding states, though the association hasn’t taken a formal position on proposed rate increases in recent years.

Garcia Richard estimates the state would miss out on billions of dollars in income and investment returns over the lifetime of future leases if royalties stay capped at 20%.

The accountability and budget office of the Legislature says a 25% royalty rate cap would increase annual revenues by between $50 million to $75 million.

Up to six leases will be left out of monthly lease bidding in March, a small portion of overall sales. The Legislature’s next regular session convenes in January 2025.

Garcia Richard, a Democrat elected to a second term in 2020. acknowledged that the state will miss out on smaller, one-time bonus payments while some lease sales are suspended.

She compared the decision to delay some lease sales to a homeowner delaying sale during a downturn in the market for real estate.

“The larger amount in the long term, to me, is worth it,” she said.

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New Mexico halts some oil-field lease sales in standoff over royalty rates in Permian Basin